« Look Out Below! | Main | What’s Nortel’s Investment Thesis? »
Is Nortel Ripe for a Takeover?
By Mark Evans | March 4, 2008
Here’s a crazy thought: Nortel is ripe for a takeover - probably by one of those shark-like private equity investors, provided they’re not spooked by the telecom equipment market and the volatile credit environment.
Here’s why:
Nortel has a market capitalization of $3.52-billion and cash of $3.53-billion. This means someone could purchase Nortel, and then cover the cost of acquisition by using Nortel’s cash. This is obviously a simplistic scenario but it does put the spotlight on Nortel’s financial struggles and how investors have soured on the company.
(Update: My math is wrong because I failed to take into account Nortel’s debt of $4.5-billion. So, someone looking to buy Nortel would have to cough up $4.4-billion, or a price-to-sales multiple of 0.44:1)
If the numbers sorta, kinda look attractive for a potential suitor, what would a hard-nosed buyer do with Nortel to really boost ROI? Perhaps it would sell non-core businesses, close operations that didn’t make sense and eliminate thousands of more jobs.
That would leave Nortel as a much smaller and, hopefully, profitable entity that could then be sold in a few years for a hefty profit.
So, let’s run a poll to get a lay of the land.